Globalisation

• Globalisation - process by which economies and culture have become more inter-connected through global networks of trade, capital flows and rapid spread of technology and global media.

  • its driven by advancements in communication, transportation, technology to make it easier for businesses to connect and operate on a global scale
• Characteristics of globalisation

  • increase in the ratio of the value of overseas trade to a nation's GDP
  • expansion of financial capital flows
  • increases foreign direct investment flows moving across national borders
  • more global brands - rising number of emerging countries
  • deeper socialisation of labour in making parts or technology transfers
  • creation of global supply chain and new trade and investment routes
  • increasing connectivity of people, businesses through networks
  • higher migration labour across national borders
• The World Trade Organisation (WTO) has assisted in the reduction or removal of trade barriers and there has been a greater proliferation of trade agreements across the world.
• Whilst some protectionist measures remain, a large number of countries with significant global economic influence have lowered protectionist measures.
• Overall, import tariffs have fallen – there has been a rise in non-tariff barriers such as import quotas, domestic subsidies and tougher regulations leading some to see a new period of de-globalisation.
• The growth of trading blocs such as the EU and NAFTA have reduced national barriers and promoted more trade and integration.
• Improved technology:

  Advances in technology have revolutionised communications, lowered labour costs and enabled businesses to access new foreign markets

  Containerisation:

  The real prices/costs of ocean and air shipping have come down due to containerisation & economies of scale in freight industries and the huge ports built to serve them. 

  Differences in tax systems:

  Some countries have adjusted their corporate tax rates in a bid to attract inflows of foreign direct investment (FDI)
• There has been a significant relaxation on the rules and regulations surrounding the movement of capital, which can move either freely, or at very low cost, quickly across the globe.
• Workers are more willing to move across national borders in search of employment.
• Many large organisations have taken advantage of lower trade barriers, labour mobility and cheaper transportation to grow rapidly and enter previously untapped markets.
• Large and rapidly developing countries such as India and China which were previously largely closed to trade have become increasingly integrated into the global economy and play a vital role in the creation of new markets and the provision of low cost labour.
• WTO - World Trade Organization - aims to raise living standards, create jobs and improve people's lives

  • operates the global system of trade rules and helps developing economies build their trade capacity
  • system helps breakdown barriers between people and trading economies
• Trading blocs - groups of countries in specific regions that manage and promote trade activities

  They lead to trade liberalisation (freeing of trade from protectionist measures) and trade creation between members
• WTO permits the existence of trading blocs, provided they result in lower protection against outside countries

  Main trading blocs - European Union (EU), European FreeTrade Area (EFTA), North American Free Trade Agreement (NAFTA - USA, Canada, Mexico), Mercosur (Brazil, Argentina, Uruguay, Paraguay, Venezuela), Association of Southeast Asian Nations, Common Market of Eastern and Southern Africa (COMESA), South Asian FreeTrade Area (India, Pakistan), Pacific Alliance 2013 (regional trade agreement between Chile, Colombia, Mexico, Peru)
• Protectionist measures are by the government to restrict or limit international trade
• Non-tariff barrier - acts as a barrier to international trade
• Multinational corporations have their operations in several countries (manufacturing & retail opportunities)

  MNCS - apple, vodafone, google, netflix, amazon
• MNCS are a key driver to globalisation as many have re-located (offshoring) to countries with low unit labour costs to increase profits and equity returns for shareholders.

  Pandemic shortened manufacturing supply chains
• Examples of MNCs

  • Tata group (India) - large investments in Western economies e.g. Jaguar, Land Rover
  • Infosys (India) - biggest information system businesses employing 160,000 people worldwide
• Capital inflows and inward investment: MNCs are principally driven by profit motives, and if they can spot opportunities for new markets or the chance to reduce production costs by moving to low-wage economies, they may take advantage of these openings, which drives capital expenditure and investment funds into a country.
• Economies of scale: MNCs can seek low production costs and spread their production over greater units of output, which allows them to reduce unit prices.
• Employment: Create employment opportunities for local workers.
• Infrastructure: MNCs will often invest in training the workforce to improve their skills, and also spend money on local roads and transport infrastructure to aid their own trading opportunities and distribution.
• Diversification: Developing countries may have very few industries to help them generate economic growth and the arrival of MNCs may help to diversify the economy across a wider range of businesses and sectors.
• Standards: MNCs will often work towards the provision of minimum standards in either production for example, health and safety considerations or the improved final goods or services.
• Profit motive: MNCs will be driven principally by profit, which may come at the expense of consumers and employees.
• Impact on small firms: It is unlikely that small, local companies will be able to compete with large MNCs, and consequently they may be unable to survive in the marketplace, so reducing overall competition.
• Environmental impact: MNCs may choose to locate in countries or regions with fewer environmental laws.
• Exploitation: MNCs may exploit local resources and the labour force for their own gain, whilst the shareholders of the home nation enjoy the dividends from profits.
• Taxation: MNCs will often move their ‘home’ for tax purposes, usually to minimise tax liability
• The cases of Starbucks and Amazon demonstrate how this affects both developed and developing nations.
• Economic benefits of globalisation:

  • Cheaper goods and services for consumers
  • More competition in consumer markets
  • Reduction in absolute poverty rates
  • Gains from specialisation of factors of production
  • Rapid transfer of ideas stimulates innovation
  • Gains from improved labour mobility
• Globalisation encourages both producers and consumers to reap benefits from division of labour and harnessing economies of scale across many industries
• More competitive markets reduce the level of monopoly profits and can incentivize businesses to seek cost-reducing innovations
• Trade can help drive faster economic growth, leading to higher per capita incomes and reduced extreme poverty in many lower income countries
• Advantages from the freer movement of labour between countries include helping to relieve skilled labour shortages and promoting the sharing of ideas from a more diverse workforce, which can then promote innovation
• Globalisation has increased awareness among people of the many long-term challenges from climate change and the impact of wealth & income inequality
• Economic & social costs of globalisation:

  • Rising inequality
  • Threats to the global commons
  • Macroeconomic fragility
  • Trade imbalances
  • Jobs
  • Dominant TNCs causing less cultural diversity
  • Corporate tax avoidance
  • External costs from unsustainable growth
  • Growing relative poverty
  • Brain drain effects
• De-globalization, also known as anti-globalization, refers to a process in which countries or regions become less integrated with the global economy
• De-globalization involves a reduction in the value of the flow of goods, services, capital, information, and people across international borders